20 years of euros, time to take stock

After 20 years of euros, it is a good time to take stock. Thanks to the new currency, Dutch exports received a boost and we often no longer have to deal with foreign currency on holiday. However, the currency is far from perfect.

On January 1, it was exactly 20 years ago that the euro was introduced. Initially, the coin was only used in cashless payment transactions and it was not until 2002 that it was possible to pay with the coin in shops and cafes. On paper, the euro is a great success. The size of the economy of the eurozone has grown 1998% to $72 trillion since 11,2. Here the growth was even higher and so our economy is now roughly twice as big as it was 2 years ago.

The number of European countries in which you can pay with the currency has increased from 11 to 19. In this area, 75% of the population says they are satisfied with the euro. Moreover, in the Netherlands we no longer have to feel homesick for the guilder. On April 8, 2014, the digital guilder was introduced as a crypto currency.

Hard times
However, the euro is not an undivided success story. A few years ago, the debt crisis in the European Union put the spotlight on the drawbacks of a single currency. On bond markets, the government bonds of all euro countries were initially lumped together. As a result, Greece the possibility of increasing the national debt to such an extent that the country threatened to collapse under this burden.

In addition, it is no longer possible to tackle economic problems in one's own country through its own exchange rate and interest rate policy. That role is now reserved for the European Central Bank (ECB† In practice, determining the ideal interest rate is a difficult task. For example, the current 0% rate is ideal for Italy and Greece, but the interest rate is far too low for the Netherlands, Germany and other Northern European countries. Many savers will undoubtedly think the same.

Back to start?
A European banking union must protect the eurozone against new shocks, such as the Greek debt drama. Measures of this kind also ensure that the euro will still remain in 20 years' time exists† The big question is, of course, what the coin is worth. When the past is a clue, the difference with the dollar doesn't have to be that big. On January 1, you got $1,15 for $1: exactly the same level as 20 years ago.

In the meantime, the exchange rate has fluctuated between $0,85 (2000) and $1,60 (2008). In view of the rising US government debt and a possible first interest rate move by the ECB around the summer, the euro could gain some ground against the dollar in the coming period. What that will look like in 20 years, however, is a lot more difficult to predict.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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